Polish Steel expects to post modest second-half profit

Steel conglomerate Polish Steel (PHS) has started to operate profitably and will stem its 2002 losses by at least zł. 100 million ($24.3 million) by year-end as synergies resulting from the merger of its mills begin to take effect, said PHS vice president Krystian Kozakowski. The creation of PHS in May this year was the cornerstone of the government's restructuring program for the floundering Polish steel sector. In the first six months, PHS brought Polish taxpayers losses of zł. 300 million ($73 million). But the ongoing restructuring of the company's zł. 5 billion ($1.6 billion) debts and production cuts means that the conglomerate will see profits for the last five months of the year, Kozakowski said. "I would like to see us break even by the end of the year," Kozakowski said. "A loss of zł. 200 million ($48.7 million) will be a significant improvement, but we have to make up for our losses. If we manage to claw back as much as zł. 130 million-zł. 140 million ($31.7 million-$34.1 million) then things will be great."

The mills began to move into the black in June and July, after creditors of Huta Taduesza Sendzimira (HTS), the second largest mill in the conglomerate, agreed to write off zł. 750 million ($182 million) of debt, while HTS's banks unfroze its accounts, reducing disruption to the company's production. "The financial results for all four mills were in the black in the past two months," Kozakowski said. "The debt that the company inherited from the first half of the year is still there, but the mills are now beginning to compensate." The restructuring of PHS has focused on eliminating excess steelmaking capacity, rationalization of production across the three mills and the sale of non-core assets, which will help the group to start bringing sustainable profits next year, Kozakowski said. "Next year we will see the effects of the synergy and the mills' profitability will stabilize," he said. "We are aiming at quality, not quantity. I think it will be enough if we reduce our production by 600,000-700,000 (metric) tons next year. This would be acceptable for the EU and also satisfy us." Restructuring in the Polish steel industry has taken on a new urgency, said Romuald Talarek, the president of the Metallurgical Chamber of Industry and Commerce (HIPH). The lack of adaptation of Polish mills to market needs will for the first time create a negative balance of trade in the steel industry. "This negative balance has grown from year to year," Talarek said. "If the government takes on the restructuring itself, it can only do so within its means, while a strategic investor will only restructure to the extent it needs to."